There will be an estimated 60 million new mouths to feed each year in the first half of this century, and the global population is forecast to exceed 9 billion by 2050[1]. Approximately 80% of this growth will come from emerging markets, where new middle class consumers are demanding higher calorie food stuffs. Food supplies need to rise sharply – by 70% by 2050, if they are to meet demand[1].

There is limited additional arable land, water, mineral inputs as well as rising concerns about pollution and climate change. As a result, optimising resource use and improving productivity is the most effective approach to increasing yields and consumer supplies. This can be achieved by increasing agricultural efficiency, improving distribution infrastructure and reducing wastage.

The implementation of these productivity improvements offers new growth opportunities for diversified businesses along the food and agriculture value chain, and provides a number of interesting investment propositions.

The Food and Agriculture sectors comprise a large diverse group of companies. Impax research shows that a portfolio combining both consumer-led food stocks and commodity-led agriculture stocks improves longer term risk adjusted returns compared to investing in just one sector alone.

The intrinsic characteristics of the food and agriculture industry make it an attractive area for investors seeking long term risk adjusted returns. The sector offers exposure to:

  • Consumer-led food stocks, which are cash generative and underpinned by sustainable growth
  • Higher beta agriculture stocks, which offer some positive correlation to soft commodities
  • Corporate commodity risk management expertise

After a prolonged period of under investment, this industry is now attracting significant new capital globally in order to meet the diverse and complex challenges it faces. The established supply chains are changing, new ones emerging and there are also new investment opportunities emerging in ancillary goods and services. It is a complex and increasingly volatile sector requiring specialist insight and a rigorous investment process to support stock selection across the value chain.

In this paper Impax reviews the global macro trends behind industry growth, examines ways to increase agricultural efficiency, improve infrastructure and reduce wastage. It also considers a couple of interesting emerging investment themes and suggests an approach to constructing a food and agriculture investment portfolio in order to achieve the best risk adjusted returns.

[1] Food and Agriculture Organization of the United Nations (2009), How to Feed the World in 2050,…

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